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Amazon's Push for One-day Delivery Influenced Q2 Profits

Amazon.com on Thursday reported its first profit miss in two years and said income would slump in the current quarter, as the online retailer ramps up spending on one-day delivery to spark sales growth.

The company also said its investment in faster shipping was starting to pay off, with revenue rising 20% to $63.4 billion in the second quarter ended in June.

Amazon has more than 100 million paid subscribers to its Prime club by releasing original TV shows, equipping more gadgets with its voice assistant Alexa and offering quick shipping for countless goods, including groceries from its subsidiary Whole Foods Market.

The company has been also investing to halve delivery times to one day for Prime members, to stay ahead of rivals such as Walmart that have marketed two-day shipping without subscription fees. So far Amazon has expanded one-day delivery to only a fraction of the millions of goods it offers in two days in the United States.

The cost slightly exceeded the $800 million Amazon had forecast it would spend on the initiative in the second quarter, Chief Financial Officer Brian Olsavsky said on a call with reporters.

“Right now we are seeing an increasing and ramping cost penalty, and that’s what’s built into the Q3 guidance,” Olsavsky said, adding that most of the work to roll out single-day delivery outside the United States lies ahead of the company.

“Customers are responding to Prime’s move to one-day delivery — we’ve received a lot of positive feedback and seen accelerating sales growth,” said Jeff Bezos, Amazon founder and CEO. “Free one-day delivery is now available to Prime members on more than ten million items, and we’re just getting started. A big thank you to the team for continuing to make life easier for customers.”

Amazon’s profit inched up to $2.6 billion in the quarter. Operating expenses had jumped about 21%.

Amazon is gradually moving away from low-margin retail toward a marketplace model where it collects fees for helping other merchants on its site ship and advertise their products.

Revenue from seller services grew 23% to $12.0 billion in the second quarter, while ad and other sales increased 37% to $3.0 billion.

Earlier this month, the European Commission launched an antitrust probe into whether Amazon’s use of other merchants’ data offered an unfair advantage to its retail unit, which has made private-label versions of popular products.

At the same time, sales growth for Amazon’s cloud unit fell below 40% for the first time in years. The unit raked in $8.4 billion in revenue in the second quarter, or 37% more than the year prior.

For the third quarter, Amazon said it expects operating income between $2.1 billion and $3.1 billion, versus $3.7 billion the year prior.